Asymco

Asymmetric Intelligence

Industry

  1. A new mobile phone market index

    Research · 90 comments

    Measurements of "share" are abundant. There is journalistic value in summarizing performance in a single figure of "share" but it usually is a very limiting view. For example in the global mobile phone market there are at least the following measurements available:

    1. Share of all handset units sold
    2. Share of installed based of handsets (penetration)
    3. Share of smartphones
    4. Share of mobile computers
    5. Share of value (revenues) captured
    6. Share of profits
    7. Share of platforms
    8. Share within a given platform
    9. Share by regions/countries/geographies/demographics

    One could go on. So performance in a market can only be measured if you know to what end is that measure applied. Are you trying to determine current performance or are you assuming that the future will be different and trying to figure out what that future will look like?

    There is no good answer. It depends. But at least we can combine more than one share value into a summary. Mark Hernandez suggested that I put forward a "composite index" to measure vendor performance. I am willing to give it a try. The first iteration can be an unweighted average of four "shares":

    1. Share of all handset units sold (global)
    2. Share of smartphones
    3. Share of value (revenues)
    4. Share of profits

    The raw data for each share is shown in the following charts (note change of vertical scale: each gridline represents 10%).

    Note that the vendors are arranged in a particular way: top row are entrants, bottom row are incumbents with late incumbents from Korea arranged in the middle.

    Taking the average of each of the lines above, the unweighted share index (Units, Smartphones, Value and Profit) is shown below:

    Over the time period since Apple's entry in the market, the index shows interesting patterns:

    • Apple and Nokia trading places
    • Relative stability for Samsung
    • A leveling off for RIM
    • The Peaking for LG
    • Very tightly coupled declines for Motorola and Sony Ericsson
    • Gradual improvement in HTC

    And here it is in sparklines:

    Like many indices, this is a generalization that measures a section of reality. The value is in its use as a benchmark. If nothing else, it has journalistic value. I'm open to suggestions on how to improve it. Perhaps some form of weighting would be useful. Also, if anyone can suggest good name for it, it might be easier to communicate.

  2. A disruption is not sufficiently described by the success of some. Others must fail.

    Research · 46 comments

    Last fall I introduced the "vector space" model of visualizing vendor performance. It shows performance along two dimensions: market share growth vs. profit share growth for a set of competitors.

    When introduced, I chose a long time frame (15 quarters) to see the long-term pattern. This quarter I add two more time frames: year-on-year and sequential. This allows a view of how market change is itself changing. The three diagrams are shown below (note difference in scales)

    One way to interpret this is movement toward the upper right is positive while movement down or to the left is negative. A deeper meaning can be obtained from noting that the vector sum or "net" of vertical and horizontal data points should be zero (i.e. the gains in share should be at the expense of losses in share). In terms of phone market share the "net" is not zero as "others" are excluded, but the difference is visually not perceivable.

    Since we're dealing with share, one way to interpret the data is that "improvement" in one's position is offset by the "decline" in another's. We cannot ascribe the benefit of a vendor directly to the loss of another but overall net gainers are offset by net losers.

    By tracking this position change over time we can see if there is a set of consistent winners and a set of consistent losers. The pattern does show that:

    • Smartphone vendors grow consistently
    • Apple in particular has consistent growth with profit growth faster than share growth
    • Nokia in particular has consistent decline with profit decline faster than share decline
    • RIM shows profitability concern in the near term. In particular vs. HTC
    • Samsung shows some near term share loss, probably due to unbranded vendors
    • It's very rare to have a company lose market share while gaining profit share or to gain market share and lose profit share. This implies that in this market one does not trade off volume for profit.

    The correlation between profit and volume growth is very telling. As is the consistent clustering of winners and losers. This analysis demonstrates the shift in the industry is not a short term phenomenon but a disruptive changing of the guard. If history is any guide, this change is not going to be undone.

     

  3. "Other" vendors sell 10% of Smartphones but 30% of voice-oriented phones

    Research · 12 comments

    In the last post, I highlighted the difference between smartphones and non-smart device sales last quarter. The trajectory of share growth for smart devices would appear to have accelerated due to Android.

    The following charts show the evolution of smartphone vendors and platforms over the last few years.

    Like in the past, I used color clustering to show the separation between "integrated" (in green) and "modular" (in brown) platforms and their users.

    Unlike the non-smart market where "other" make up 30% of the market, smartphones are still a big brand business. "Other" make up only 11% of units. and that number has been trending down. It would seem that the age of unbranded Android phones is still not upon us.

    Comparing three years "before and after" here is Q1 2008 vs. Q1 2011 by vendors share:

     

    Apple added 15% of share, Samsung 13%, Motorola 4%, RIM and HTC 2%. Nokia lost nearly 20% of share.

    From a platform point of view, the unit chart looks like this:

    Note that Android's growth came at a time when Symbian had a terrible quarter. The evidence is visible in the share chart:

    Android's gain seems to be at the expense of Other, Windows Mobile and Symbian. In the pie chart snapshot over a three year period the transfer seems clear.

    Android took 35% of share, iOS 14% and RIM 1%. Windows Mobile/Phone has collapsed to 2%.

    But again I would caution about drawing "sustainability" conclusions from looking at this market with a share perspective. As it's growing at a huge rate (73% year/year) it's bound to be become so large that single digit share numbers still amount to vast ecosystems while huge shares of fragmented products don't amount to much of value. To emphasize the point, I would remind that in 2008 Symbian was not just Nokia but a lot of "Other" was made up of Symbian in Japan. The combined fragmented footprint of Symbian was well over 60% of the market. It did not do much good for the platform.

  4. Feature Tablets

    Research · 48 comments

    Andrian Georgiev, a reporter from the Bulgarian business newspaper "Capital weekly" wrote an article for which he asked me some questions. My answers are below. The article is available here (Bulgarian).
    Q: How many tablets will be sold worldwide this year and in 2012?
    A: We can only guess the answer. The total will be constrained by parts shortages for 2011, but my estimate [through the end of 2012] is over 100 million. Perhaps even 120 million is possible.

    Q: Do you think Amazon is working on a tablet? Could it be a game-changer?
    A: If Amazon (or Facebook or Baidu) were to build a tablet the greatest innovation will be in their business models. In other words how they make money. I suspect Amazon's hardware will be free or nearly free but users will be incentivized to buy content or other goods from Amazon. Similarly for other businesses that will take a hardware product and make it an accessory to their core business. In that regard the "game will change" because hardware will conform to "the application" above it. In other words, that the device will be an accessory to the service, not the other way around.

    Q: Why is it so hard for manufacturers to create a tablet that rivals iPad?
    A: The iPad is a collection of components. Some are easy to duplicate or to source. This includes memory, microprocessors, communications components. Other components are harder to find and may be expensive once found. This includes the right kind of batteries and the screen. Yet other components are impossible to find or duplicate. That includes software.

    --

    Some additional thoughts:

    The changing of the game may not happen for some time. "Feature tablets" (analogous to feature phones) will however be viable as niche businesses quite soon. I believe "conforming" operating systems will be more popular with tablet makers than with phone makers.

  5. The trouble with halos

    Research · 45 comments

    The Mac grew at 28% while the overall PC market contracted at 3%. The Mac has outperformed the PC market overall for 20 consecutive quarters.

    Prices increased sequentially and year-to-year.

    I've mentioned the increasing shift of Mac mix to portables as a possible reason for the growth of the business. The Mac was one of the first to move to a portable form factor and has been pushing portability over performance for many years.

    The following chart shows the relationship between growth and portable mix:

    The trouble is that mix is not enough to explain the increasing gap with the rest of the PC industry. Windows PCs have also embraced portability and have even run down the path of over-serving portability with the netbook.

    Clearly something else must also be at work. This was even noted by Apple's COO Tim Cook in the last conference call in response to question on the effect of iPhone growth on the Mac:

    [iPhone] clearly seems to be creating a halo effect for the Mac. And I think that's one reason we see the growth that we are seeing on the Mac. It's amazing when you see the 28% year-over-year versus the worldwide market in PCs contracting by 3 points. It's an astonishing delta.

    The delta has been there for a while but it's widening and it's persistent.

    I've never been comfortable with the halo effect. Not because it's not happening but because we don't have a way to measure it. I've never seen reliable data that establishes a causal link. Lots of anecdote but little proof.

    The other problem with halo is that it implies illusion and hence impermanence. The halo effect is a cognitive bias which can mislead. An example would be judging a good-looking person as more intelligent.

    This effect is often exploited in marketing. It's quite common in the automotive industry where halo vehicles (e.g. Ford GT 40 or Dodge Viper) are created which promote sales for the entire brand even though they may lose money. These efforts often fail or have temporary benefits at best.

    When it's deliberate and an attempt to prop up something unworthy it seems deceptive, dangerous and temporary (buyers may be disappointed when they buy a Ford or Dodge and realize that they are not supercars and a reverse halo effect can emerge.)

    A halo effect should be used to boost a product that is under-rated not badly rated. This is when the effect creates benefit over a long period of time like the five years over which the Mac has over-performed.

  6. A new era is only a new state of mind

    Research · 51 comments

    The following interview was conducted by Bruno Ferrari a writer about technology for EPOCA, the weekly magazine of Organizações GLOBO, the largest Brazilian media company on March 30 2011. The article (published in Portuguese here) is an edited subset of the following exchange.

    Q: In your analyses, you mention tablets as part of a new era, the “Post PC era”. Why do you think the PCs will be replaced by tablets?

    This is not quite correct. Post PC does not mean the end of the microcomputer. The way to think about it is this: The stone age did not end because we stopped using stones. Same with the iron age and the industrial era. The era of jet travel did not end automobile or even ship travel (though that changed to recreation rather than transportation for passengers.) Each phase of technology does not fully replace its predecessor. It offers a new set of solutions and perhaps a slightly different way of solving old problems. We'll still have PCs but we will use a new type of computer, an even more personal computer. The world still uses the microcomputer's technological ancestors.

    In terms of what new jobs will we hire the tablets to solve, they will vary greatly from what we used PCs for. Just like we used microcomputers for different things than we used time-shared minicomputers and mainframe computers. I expect social interaction, media consumption and entertainment will move from a PC to a tablet. New uses will emerge from the vast experiment that is the app phenomenon.

    Q: What are the new ways to interact with machines? With gestures? How will this change the market?

    Each major disruption of computing came from a new generation of input and/or output methods. Terminals (vs. punch cards) enabled minicomputers. The GUI enabled the rise of the microcomputer and touch is enabling the rise of the tablet. Perhaps this era will last decades perhaps only years, but there will be new input and output methods available. The world's research laboratories are filled with ideas from projection screens (from high brightness LEDs) to motion sensing (as implemented partly by Kinect) and even novel voice control methods. I believe that each major innovation will create a new wave of growth and, if coupled with a new business model, a new set of companies and platforms.

    Q: What are the main differences between PC and Post PC era?

    The main difference will be in the context in which the product will be used. Tablets and smartphones allow "computing" to be done in previously non-consuming contexts: while standing, while in the active company of others, while commuting or while lying back and relaxing. It will also allow more individual use. Like the transistor radio allowed teenagers to listen to rock-and-roll out of hearing range of their parents who had control over the family stereo, a truly personal computer will allow people to "escape" into a world of more intimate consumption and communication.

    Q: Do you think physical keyboards and mouse will be extinct?

    Even physical keyboards have been evolving dramatically. If you look back to the earliest IBM PC keyboards, they were mechanically complex and had a rich feel. Modern laptop keyboards are flimsy things with barely any feedback. Early PC keyboards were patterned after the needs of professional typists (aka secretaries). Current keyboards are designed around space constraints. Same with mice. They went from two to three to one to no buttons. With laptops we ended up with track balls,  little knobs in the middle of the keyboard or with trackpads. Users adjusted over time.

    What changed with tablets is the removal of an on-screen pointer. The pointer was there because the mouse/touchpad was one layer of abstraction for controlling what was on screen. Without a pointer you have direct manipulation. I'm sure many people who never used a mouse would find the direct method more intuitive and in a generation people will wonder how we put up with mice. Conversely, those who are used to a mouse will find it uncomfortable at first. Remember that in the 80s many keyboard experts found mice something that slowed them down.

    So I believe that people will adjust to a world without mouse pointers. I suspect children born today will grow up without ever using a mouse (or a phone with a wire permanently attached to the bottom).

    Q:  Apple has more than 90% of tablet market worldwide. Do you think Apple will be the leader of technology market in the next few years?

    The challenge for Apple is that they cannot serve the whole world. They can only grow so fast. On one hand we have their inability to meet demand and on the other we have alternative products which can. Market leadership may not be sustainable just because the market is so big and no single company can supply it. I do believe that Apple is not sitting on its hands however. Their culture promotes pushing forward.

    Q: At smartphone market, do you believe on a risk of a new duopoly, Apple-Google? Some analysis says that they’ll control the channel sales of software, content and hardware. The conclusion is companies like RIM, Nokia and HP (Palm) will not be able to keep up.

    Analysts differ in their opinions. IDC just released a forecast that shows Microsoft growing beyond iOS in four years. I don't try to make this type of prediction. At least not to a high degree of precision. I do believe that there will be more than two platforms. This is because the market is so large and so diverse and there are so many ways to reach customers (through operators, through retail stores, through online).

    Q: Can we compare the beginning of the tablets with PCs? Apple developed the interface and made ​​the first computers nice and easy to use. But Windows has allowed hardware manufacturers to invade the market, popularizing it. This will be repeated with Android? Or with other systems?

    Innovations are always copied. Even when protected by all sorts of laws or patents. What makes a company successful with innovation long term is to always keep innovating. Often coming up with the next big thing means damaging the old thing. That's hard to do for many companies so they don't do it and somebody else does. This is why great companies end up as formerly-great companies. As I pointed out above in the discussion about input methods, innovations are always bubbling up. As long as Apple takes these ideas and polishes them and brings them to market, they'll do all right.

    Q; How about Microsoft? Do you think the company will lose the podium in Post PC era?

    Microsoft already has lost its position as leader in personal technology. The end actually came in about 2000. Once Windows became "good enough" and did not crash so much, they have had a hard time finding something to improve. If you go back and watch every CES keynote that Microsoft presented since then it's been a litany of dead end ideas.

    Every major innovation since 2000 has been in consumer technology and that's never been an attractive business for Microsoft (with the exception of XBox which was really aimed at Sony and Nintendo without the intention of creating a new market.) Microsoft struggles not because they lack talent (engineering or management) but rather because their business model is relatively rigid. They make money through software licensing. You can see how that's a hard thing to sell to consumers ("I'm buying what?") Consumers tend to pay Microsoft through the purchase of another product. If the market demands hardware/software integration (like in a phone or tablet) or making money by giving software away (like Google), they struggle. This business model rigidity is present in almost all companies, so Microsoft is not uniquely troubled.

    Q: Most of the tablets will use mobile networks to connect to the internet. Do you think the world is ready with an infrastructure that supports this growth in access via mobile networks?

    This is a good question because the growth of mobile broadband is a major enabler (or constraint) on growth. Fortunately, the roll-out of mobile broadband is fairly predictable and it looks good. There are some challenges for operators long term in paying for the infrastructure, but they don't lack for financing today and the business case for more infrastructure seems to be very attractive. It will take time and it won't be even globally, but the incentives are clearly there. A lot of value is being created with mobile computing and much of that value will end up paying for the bandwidth.

    Q: How about the App Market. You posted recently a chart showing how fast developers are buying thickets for both Google and Apple developer events. You said that it is one signal of the Post PC Era. What will be the importance of apps on the next years. Do you think Apps market will be more important than hardware, content and OS market?

    Developers are one more sign that something big is happening. It's not the only sign and may not be the cause of the change, but it's yet another signal. But apps are a phenomenon that will result in something bigger than we can imagine. The way to think about apps is as a new medium, similar to the emergence of radio, television, cinema and even books. The app is a new art form as well as something that provides functional value. We don't know whether the app phenomenon will be tied to one platform or will evolve to something like HTML5, a common standard. But the value of having an app for everything is plainly evident. The economics, creative energy and dynamism of apps cannot be overestimated. I will write more about this subject as I think it's one of the most important consequences of the post-PC era.

    Q: What’s the destiny of the PC? Are they on their last years?

    Again, it's not so much that PCs will disappear any more than mainframes or servers have disappeared. What is more likely is that they will be used for isolated, focused jobs. The "end of an era" is the end of growth, not the end of existence. The PC has arguably reached end of growth in most developed markets. There is still strong growth in emerging economies but even there, much of that growth will probably be replaced with smart devices growth.

    Q: We had the Mainframe Era, the Terminal Era, the MiniPC Era, The PC Era and now we starting the PostPC Era. Do you imagine what Era we'll se after the tablets? When do you think is it going to happen?

    I don't try to be a futurist who can see with clarity technological change. I try to see the patterns of markets through the motivation of companies. With that in mind, my answer will be that large companies will acquire promising new technologies from start-up companies and implement products with global distribution. To see the future you therefore need to look at what small companies are doing today. I note that there is a lot of innovation in new communication methods (social media) and new input methods around gestures and display technology. I am skeptical about the power of voice controls.

    I'm most confident that there will be a re-definition of television, a "socialization" of almost all media. So I'll abstain from answering directly what happens after the Tablet Era. Perhaps something more personal and more of a companion than a tool.

  7. First quarter PC forecast: Windows down 2%, Mac+iPad up 250%

    Research · 100 comments

    Charles Arthur of The Guardian writes that PC sales "may have passed their peak".  That's a powerful, concise statement. It's backed up by a quote from Gartner's Mikako Kitagawa:

    "This was the third consecutive quarter of mobile PC shipment declines in the US"

    IDC even lays part of the blame to something called "media tablets"[1]:

    "While it's tempting to blame [PC] decline completely on the growth of media tablets we believe other factors [...] played equally significant roles."

    But there are several problems with both IDC and Gartner's analysis of the market. It's hard to make out causality from their data. There is separation by vendor but not by operating system and there is exclusion of devices hired to do the same jobs as PCs.

    For this reason, I need to do my own analysis. I retrieved Gartner's public statements on the overall market and layered actual Mac and iPad units sold. I also added my estimates for the Q1 2011 quarter just ended to complete the picture.

    We can now get an understanding of how the industry behaves with and without various platforms. The chart at the left gives the various growth rates of the market with platforms isolated from each other. I apologize for the shape of the chart but the scale does not permit a concise visual.

    Including the iPad, the total PC growth is shown by the blue line. It shows that the market peaked during the recovery but is now slowing considerably.

    The green line shows the PC industry excluding both the Mac and the iPad. Although it might include Linux or computers sold without an OS, the label "Windows PC" is a fairly close approximation. It shows that the market excluding Apple entered contraction this quarter and is out of sync with overall economic recovery and growth.

    The red line shows the behavior of the Mac franchise. It's well ahead of the overall market with 2x to 3x the growth. This has been a pattern for over 18 quarters.  I had some thoughts on this in a November 2010 hypothesis.

    But the most telling line is the orange line which includes both the Mac and the iPad. In an industry where growth is usually measured in single digits, the iPad business brings growth in three digits.

    This near tripling of unit sales is symptomatic of fundamental change that cannot be ignored. Although some analysts contend that the iPad is not causal to the decline in other PC sales, teasing out platforms data seems to show a divergent view.

    The bottom line is that Windows-only computer units are down 2.0% while OSX-based computer units are up 272% (this excludes both the iPhone and iPod touch).

    Correlation is not causation but tests or surveys where substitution can be proven do exist. For example, a recent survey shows that 77% of users reported that their PC usage decreased after getting a tablet. It also showed that 28% considered their iPad as their primary computer.

    So coupling the sales data with the usage data does point an accusatory finger for the decline on the iPad.

    In addition, some vendors are being hit harder than others which also hints at where substitution is happening. For example, IDC reports that Acer US unit shipments fell 42% in the first quarter and 16% globally (Gartner's numbers are less dramatic but in the same direction). Since Acer is known for its netbook computers it's another telling sign of possible substitution (Acer's own management has indicated as much.)

    So the weight of evidence is beginning to be conclusive: the iPad is the new PC. It should be clear by now that the iPad moves computing into new contexts so it does not yet substitute the PC market but extends it and increases consumption. Substitution is happening in low-end grazing type of usage, a place where the PC was ill-fitting anyway. Incumbent vendors might actually be relieved that the lower margin netbook is finally being supplanted and they can concentrate on the higher end.

    --

    Notes:

    1. Analysts like to call the iPad a "media tablet" but the same AdMob survey shows media consumption to be one of its least popular uses.
  8. Divinely inspired analysis

    Research · 103 comments

    Three things stand out from Gartner's latest smartphones forecast:

    1. They published a four year forecast with seven significant digits of precision (implying a margin of error of 0.00001%).
    2. There is a linear growth in total market size.
    3. There are no significant share changes after 2012.

    The latter two claims are illustrated below:

    Notwithstanding the defensibility of these claims Gartner analysts makes some further assumptions (quoted verbatim).

    1. "Apple will be interested in maintaining margins rather than pursuing market share by changing its pricing strategy"
    2. "RIM’s migration from BlackBerry OS to QNX which is expected in 2012"
    3. "Nokia will push Windows Phone well into the mid-tier of its portfolio by the end of 2012"

    These assumptions may be valid, but from where I'm sitting, the first assumption contradicts Apple's COO, the second would be an engineering marvel and the third would be an organizational miracle.

    Putting together all the long term forecasts with what is already known about the market history gives the following combined forecast.

    At the risk of repeating myself, the only thing I can summarize from this collective wisdom is that the over-riding assumption in forecasting seems to be that the future is an extrapolation of the present. That would indeed be a miracle.

     

  9. When will smartphones become phones?

    Research · 31 comments

    The US smartphone penetration continues to accelerate.

    ComScore has been reporting the estimated absolute number of  smartphone users and the last month saw a significant increase of 1.58% in penetration. About 30% of the 234 million US cellphone users (above age of 13) use smartphones. That number was 21% in May of last year.

     

    That means that over 20 million people stopped using voice-only or feature phones in the last 10 months. Equivalent to a rate of 2 million per month.

    However, the rate of switching has not been steady. The following chart shows the number of switchers per week. In February it's been about 900,000 per week and it's quite possible that in March we've seen 1 million per week.

    To bring the point home, I have put together a countdown timer which will be updated monthly with my estimate of the date when 50% of US cell phone subscribers will be using smartphones. (There is a link to the timer at the top right of every page on this blog).

    I pinned that 50% figure because by then I hope people will stop calling them smartphones and begin calling them phones.

  10. The pitfall in platform predictions

    Research · 52 comments

    It's a great misfortune that we don't have data about the future. It makes it hard to tell what's going to happen.

    It's even harder because although sometimes we have data about the past, the past and the future don't always look the same.

    Clearly that's what makes predictions about mobile computing platforms tricky. Nothing that has happened recently had been predicted by those who had tried to do so in the past.

    The difficulty is compounded if trying to forecast in the long term like 4 or 5 years ahead. The tendency is to extrapolate what has been happening to date.

    It's tempting to project whatever trends one sees into the future. The problem is that some trends are more visible than others.

    For example, let's look at the following three forecasts (IDC, ABI Research and Ovum) projecting platforms for 2015 and 2016. Although there are some differences in magnitude of the entire market, there is a strong similarity between the forecasts and with the current trends[1].

    However, when comparing what was happening in 2007 with the market three years later[2] it's clear that most of the change was from the entry of iOS and Android (and a large expansion in RIM as well.)

    So how are we to be sure that there won't be another entrant between now and 2016? I presume the argument is that the market is "too big" for a newcomer to make an impact. This argument is equivalent to saying that some organizations are "too big to fail". That might has a right of its own.

    However, the evidence has shown that no Goliath has ever stood for long against a suitably equipped David, especially in technology.

    Given this knowledge, the pattern or trend that I see more than any other is that the future will be dramatically different than the past. This invalidates any forecast which assumes otherwise, including all those above.

    ---

    Notes:

    1. The primary difference seems to be with how to treat Symbian. Some forecasters are replacing it with Windows Phone while others are mixing in a bit of "other" and Bada into what used to be Nokia's share.
    2. It's quite pointless to try to compare 2005 with 2010 as on this chart's scale (bounded by 1 billion units/yr), the size of the market and the size of each participant's share are indiscernible. As pointed out earlier, predictions from that era focused on PDA market shares and there was no agreed-upon definition of mobile computing competitors.
  11. Google vs. Android Part V

    Research · 145 comments

    When I began the series of posts on Google vs. Android I put forward some questions about the business logic of Google becoming an operating system supplier, especially as that role can be seen as being counter-productive to Google's strategy.

    I noted three strategy costs associated with a zero priced systems software bundle.

    1. A opportunity cost with other platform vendors, namely Apple who might retaliate against Google's core business.
    2. Versions of the software being usurped and modified to provide distribution to Google's competitors.
    3. Damage to Google's brand and positioning and negotiating power in relation with other members of their value chain.

    More fundamentally, Google-as-systems-software is asymmetric to Google-as-cloud-software and contradicts the value proposition that Google enables value in the web not in accessing the web. Android appears to be a nod in the direction that systems software still matters.

    In my numerous posts on the need for integrated development in the era of mobile computing, I also criticized any device vendor that chose to rely on a software stack from an external supplier as foolish. I claimed that they would end up creating uncompetitive products. I thus labeled Google's pursuit of them as ultimately futile.

    More than a year has passed since I began this critique of Android. It seemed quixotic as Android volumes exploded and a mad rush to the platform spun it into becoming the biggest mobile platform by units.

    However those costs did not go away. As the platform grew, they compounded. At first I wondered whether Google management was seriously considering the cost or whether it was giddy with the semblance of success.

    Well, finally, it seems that Google management has begun to acknowledge that these costs exist. In a recent Bloomberg story there are many claims that Google is reversing many of the operating principles of Android. Namely:

    • Restrictions on who gets what version of software when
    • Restrictions on what changes can be made to the software
    • Requirements for approval for source code changes

    These changes, if feasible, will affect the ecosystem dramatically. It will also reduce the second type of cost associated with the platform (the cost of enabling competitors.)

    Good news for Google then.

    There are still the other problems (disconnect from business model, loss of goodwill, damage to negotiating power). But there is actually a more sinister new problem brought about with the new crackdown: Android will no longer be disruptive.

    I also wrote a few posts (e.g. What has Android done for Apple?) where I claimed that Android has the power to accelerate smartphone adoption, especially in the "Wild East." The power of Android was with the little vendors--the ZTE and Huaweis of the world. They could finally make smartphones cheaply--almost as cheaply as voice phones--and not have to negotiate licenses and pay for software IP.

    It would be these smaller "unbranded" vendors that would really disrupt and, with them, Android would become ubiquitous for the billions of mobile broadband non-consumers.

    However, with the new policies, it's much harder for this to happen. Smaller vendors will look at the new hoops they have to jump through and probably say "no thanks." In a beauty contest, they don't look so good next to the big brands.

    They may turn to homebrewed versions of Linux or new forked Androids. This redefinition of openness will essentially remove Google from the disruptive trajectory of mobile computing.

    So we're back to the old question: Google vs. Android, who wins? If Android still has hidden costs to Google and, with its sheep's clothing cast aside, no longer offers significant distribution to the low end then how will Google benefit? The answer that there will be additional ad revenue does not cut it. That revenue would have come from placement deals with other incumbent platforms (just like Google manages to compete on PCs without having to provide its own OS).

    As Google figures this out, its licensees are at the mercy of the ensuing decision. Good luck with that.